In the past year SBA has instituted several changes to the 7(a) and 504 loan programs’ citizenship and residency requirements to comply with President Trump’s Executive Order 14159 “Protecting the American People Against Invasion”. On February 2, 2026, SBA further revised these requirements via Policy Notice 5000-876441 (the “Policy Notice”), effective March 1, 2026. See Policy Notice – 5000-876441.  In a significant change to SBA eligibility policy, the Policy Notice bars Legal Permanent Residents (LPRs or “Green Card” holders) from owning any direct or indirect ownership interest in an Applicant. The Policy Notice also rescinds SBA Procedural Notice 5000-872050 dated December 19, 2025, removing the narrow exception that allowed a Borrower to have up to 5% ownership held by foreign nationals, or U.S. Citizens, U.S. Nationals, or Legal Permanent Residents whose Principal Residence (as defined by IRS Publication 523) was outside of the United States, its territories, or possessions. This narrow exception was short lived and applies only to loans approved by SBA between January 1 and February 28, 2026

With the rapid changes from SBA regarding citizenship and residency eligibility, Lenders’ pipelines will likely contain loans with three different sets of SBA compliance rules, based on the PLP approval date of each loan.

PLP obtained prior to January 1, 2026

Borrowers’ direct and indirect ownership must consist of U.S. Citizens, U.S. Nationals, or LPRs. SBA Lenders are required to verify LPRs immigration status through the Sacramento Loan Processing Center using USCIS Form G-845, Document Verification Request. Conditional LPRs (those who married a U.S. citizen and were married for less than 2 years at the time of being granted LPR status) are not eligible. All direct and indirect owners must have their primary residence in the United States, its territories or possessions. No loan may be made to an Applicant owned by an Ineligible Person (foreign nationals, those granted asylum, refugees, visa holders, nonimmigrant aliens under 8 U.S.C. § 1101(a)(15), those under Deferred Action for Childhood Arrivals (DACA), and undocumented aliens who are in the U.S. illegally.)

PLP obtained January 1^st to February 28^th.

The same rules above apply, but SBA permits the following individuals to own no more than 5% of the direct or indirect ownership of a small business concern: (a) Individuals who are not U.S. Citizens, U.S. Nationals, or LPRs, and are not Ineligible Persons but are instead foreign nationals living outside the U.S.; (b) U.S. Citizens, U.S. Nationals, or LPRs whose Principal Residence is outside the United States, its territories, or possessions; and (c) Aliens with Conditional LPR status. SBA also tweaked the definition of “Ineligible Person” to clarify the following individuals or entities are not permitted to own any ownership interest in a Borrower (i) entities created, organized or incorporated outside of the United States;  (ii) individuals who have a Principal Residence in or are citizens of China or Hong Kong; and (ii) individuals or entities on the Office of Foreign Assets Control (OFAC) sanctions list.

March 1^st onward

SBA is requiring that 100% of all direct and/or indirect owners of the Applicant be U.S. Citizens or U.S. Nationals who have their Principal Residence in the United States, its territories or possessions. LPRS are not eligible to own any percentage interest in an Applicant/Borrower, OC, or EPC.

The Policy Notice came as a surprise to many Lenders as LPRs have historically been eligible to receive SBA financing. The number of potential loans affected by the policy shift will be substantial as there are approximately 14 million LPRs in the United States.

Considering the Policy Notice, Lenders should review the PLP dates of their loans in order to ensure the ownership structure is eligible based on the date of Approval. As always, Lenders must gather entity documentation and trace the entire direct and indirect ownership interests to individuals and in turn verify each individual’s citizenship status.

SBA Lenders should stay tuned for further clarification from SBA regarding this policy change. The Policy Notice encourages Lenders to direct questions concerning the Notice to the Lender Relations Specialist in the local SBA Field Office

For more information regarding citizenship and residency requirements, or SBA guaranteed lending in general, contact the attorneys at Starfield & Smith at info@starfieldsmith.com or 215.542.7070.